On Monday, Connecticut-based People's United Financial Inc. (PBCT) announced the pricing of nearly $500 million worth of senior notes. The offering is anticipated to culminate on December 6, 2012, subject to customary closing conditions.
The offering constitutes 3.65% senior notes having maturity date on December 6, 2022. The proceeds from the offering are planned to be utilized for stock buybacks, for extending credit as well as capital to its principal subsidiary People's United Bank and for other general and corporate purposes.
J.P. Morgan Securities LLC – a wing of JPMorgan Chase & Co. (JPM) – is the sole book-running manager for the offering. Jefferies Group, Inc. (JEF) and The Goldman Sachs Group, Inc. (GS) are acting as joint managers for the offering.
The issue of notes will increase the company’s interest expenses, thereby, leading to a fall in the net interest income. Total interest expense in the quarter came in at $25.5 million compared with $34.0 million in the year-ago quarter and $26.8 in the previous quarter.
As the company plans to utilize the proceeds from the note issuance to repurchase shares, we think the company is not able to generate sufficient cash form its operations. However, such fund raising activities will help it to bring down the cost of capital and strengthen the balance sheet. On the other hand, the sluggish economic recovery, a low interest rate environment as well as stringent regulations continue to be the causes of concern.
People’s United currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain our long-term Neutral recommendation on the stock.
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